Use the figure below to answer the following question(s). Figure 12-3 Refer to Figure 12-3. If an economy is currently operating at Y₁, which of the following would a Keynesian economist be most likely to favor? A) a shift in the federal budget toward a surplus B) a shift in the federal budget toward a deficit C) a balanced budget D) an increase in taxes

Question

Quizplus · Accepted Answer

A Keynesian economist would most likely favor a shift in the federal budget toward a deficit in order to increase aggregate demand and stimulate economic growth. This policy would involve increased government spending or tax cuts, both of which would increase the level of consumption and investment in the economy. A balanced budget or a shift toward a surplus would not provide the necessary stimulus for economic growth, and an increase in taxes would similarly dampen demand and slow down the economy.

Use the Figure Below to Answer the Following Question(s)